February 2, 20111

By first class mail and electronic delivery 

to Federal eRulemaking Portal [http://www.regulations.gov]

Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Definition of Fiduciary Proposed Rule

Room N-5655

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Definition of Fiduciary Proposed Rule

Ladies and Gentlemen:

On behalf of the commercial and multifamily real estate industry, we are pleased to submit 

this comment letter on the Department’s proposed regulation (the “Proposed Rule”) regarding 

the term “fiduciary” under the Employee Retirement Income Security Act of 1974, as amended 

(“ERISA”). ERISA imposes a high standard of conduct on fiduciaries of employee benefit plans, 

and benefit plans represent an important segment of debt and equity investment in the U.S. 

commercial and multifamily real estate markets. 

The undersigned organizations represent the leading commercial and multi-family real estate 

investment, ownership, development, lending, brokerage and management firms in the United 

States. The U.S. commercial real estate sector represents approximately $5.2 trillion of value 

supported by $3.2 trillion in debt. Its health is vital to the economy (estimates show commercial 

real estate constitutes 13% of GDP by revenue) and our nation’s financial system. An estimated 

9 million jobs are generated or supported by real estate. 

On the equity side, real estate accounts for 46% of the $13.6 trillion in assets held by 

partnerships in the U.S. It includes $460 billion of private investments, $184 billion from 

pension funds, $300 billion from the real estate investment trust (REIT) market and $30 billion 

from the life insurance companies. On the debt side, real estate is collateral for the nearly $3.2

trillion of commercial bank debt, $700 billion from commercial mortgage backed securities, 

$300 billion life insurance companies and over $17 billion from pension funds. 

We are concerned that the Proposed Rule is overly broad and will most likely lead to 

increased costs for benefit plans in need of real estate related services with little corresponding 

benefit and hamper the ability of benefit plans to utilize the resources of trusted advisers in the 

best and most cost effective way. The members of our collective organizations include 

employee benefit plans and various service providers to benefit plans that are subject to ERISA 

regulations, and we have an interest in ensuring that the Proposed Rule will not unduly restrict 

these constituents from engaging in routine business transactions with each other on arms-length 

terms. 
Letter to Office of Regulations and Interpretations

Employee Benefits Security Administration

February 2, 2011

Page 2

Particularly troubling are the Proposed Rule’s removal of the term “a primary basis,” the 

“regular basis” and “mutual understanding” prongs of the current rule and emphasis on fiduciary 

status through affiliation, all of which create a substantial likelihood that service providers will 

become inadvertent ERISA fiduciaries. We anticipate that many real estate services providers 

will be reluctant to become ERISA fiduciaries and may simply stop doing business with benefit 

plans altogether. Additionally, given the fact that, in the real estate sector, benefit plans often 

retain experts or advisers through other consultants or investment advisers, many real estate 

services providers will face significant difficulties in determining if the ultimate client is a 

benefit plan. To impose fiduciary status and its consequences on inadvertent or otherwise 

unknowing “fiduciaries” seems an undue and inequitable burden.

While we are cognizant of the intent behind the proposed regulatory change, we believe that

it casts a net that encompasses almost any service provider that makes any kind of statement

regarding a property to a benefit plan. On behalf of our constituents, we want to ensure that the 

Department is aware of some of the unintended consequences that the Proposed Rule is likely to 

have in the real estate services industry.

Examples of Negative Consequences in the Real Estate Sector

A. Brokerage Services. It appears that the Proposed Rule will make brokers of all varieties 

ERISA fiduciaries to the benefit plans that they service.

1

If the Proposed Rule is adopted in its current form, it would have a chilling effect on the 

ability of benefit plans to most effectively operate in the marketplace. For example: 

 From time to time, benefit 

plans (particularly union pension and welfare plans) purchase real estate or enter into 

leases for office space and retain commercial real estate brokers to facilitate their

transactions. In many markets, a number of brokerage firms represent the owners of 

multiple buildings. If a broker retained by a benefit plan to lease space were to introduce 

the plan to a building where another broker within his or her organization were the 

leasing agent, a violation of ERISA’s rule that prohibits a fiduciary from acting on both 

sides of a transaction will likely occur. The most natural solution will be for the broker 

representing the benefit plan to not show the plan any properties where brokers within its 

organization are the agents. This would, in turn, result in the benefit plan being limited in 

its opportunities and perhaps being precluded from purchasing or leasing office space that 

would have otherwise been financially in its best interest.

• Once it hires a brokerage team, a benefit plan would be unable to bid on or buy 

any property represented in the sale, or managed, by that brokerage firm.

 1 See, for example, comment letter of Securities Committee of the Business Law Section of the State Bar of 

Texas, January 11, 2011.
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Employee Benefits Security Administration

February 2, 2011

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• Once a benefit plan selects a leasing agent for a property it owns or has an interest 

in, any tenant looking for space but also represented by that brokerage firm would 

be unable to take space in the building, potentially rendering the building 

“undesirable” in the marketplace.

• If a benefit plan retains a brokerage firm to sell a building or property in which it 

has an interest, it would not be able to entertain any bidder represented by that 

brokerage firm.

We do not believe this is in the best interests of benefit plans, and we would be surprised 

if this is the intent of the Department’s Proposed Rule. As others have already suggested

with respect to the scope of broker-dealer fiduciary duties in the securities industry, we 

do not believe Congress intended for brokers to be treated as ERISA fiduciaries.2

We believe that the added level of regulation in this area would not necessarily be any 

more protective of plans. To the contrary, such regulation would have an adverse impact 

on plans and their participants by putting them at an economic disadvantage relative to 

other market participants.

 

B. Multiple Service Providers. Some of our constituents are full service real estate 

services companies that offer a variety of services to their clients and customers 

(“Multiple Service Providers”). For example, a single company may provide any number 

of the following services: property management, project management, general consulting, 

project finance, general market research, commercial brokerage (both sales and leasing), 

portfolio management, and appraisal and valuation. For these organizations, the 

Proposed Rule will have the effect of depriving plans of the benefit of a multi-faceted 

approach to services, which generally results in cost efficiencies and improved service. 

The most likely result is that benefit plans will again be disadvantaged in the 

marketplace. 

As we understand the Proposed Rule, the effect on Multiple Service Providers will be 

twofold. First, under the Proposed Rule, if they are affiliated with investment adviser

(which the majority of them are) and/or each other, such an affiliation makes it likely that 

any advice or recommendation that they give to a benefit plan will be treated as fiduciary 

advice. The Proposed Rule, therefore, will require Multiple Service Providers to institute 

new methods of tracking and monitoring the various relationships that they may have to 

benefit plans, which will likely present significant operational challenges given that these 

relationships are not necessarily tracked for any other purpose. Identifying and keeping 

track of entities that hold “plan assets” based on ERISA’s “significant participation” or 

“25%” test may be particularly difficult for organizations that may not have had a reason 

to track these relationships in the past. When coupled with the indirect manner in which 

benefit plans often invest in real estate and/or retain Multiple Service Providers, this will 

place an inequitable burden on such conglomerates while potentially increasing costs for 

 2 See Id.
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Employee Benefits Security Administration

February 2, 2011

Page 4

benefit plans or depriving them of necessary services, even if they are preferred by the 

benefit plan.

Second, it is common for Multiple Service Providers to “cross sell” services, a practice 

that can often result in significant cost savings and other efficiencies (e.g., enhanced 

institutional knowledge of the client’s overall business approach and strategy). Another 

unfortunate result of the Proposed Rule is that the “first service in” may foreclose the 

benefit plan’s ability to further utilize any other services of a Multiple Service Provider, 

even if it is at arm’s-length and no matter how attenuated from “investment advice” the 

first service is. For example, if a branch of a Multiple Service Provider provides 

brokerage services to a benefit plan purchasing a property, the broker’s affiliates could be 

prohibited from providing other services to the Plan for that property (e.g., management

services), depending on how broadly the broker’s fiduciary duties will be considered to 

extend. Similarly, if and when the plan wants to retain a leasing agent for that same 

property, the Multiple Service Provider could be ineligible for that assignment and the 

benefit plan could be denied the ability to have an arm’s length competition for the best 

provider. As such, it appears that the Proposed Rule will inappropriately restrict the 

choices for the benefit plan. We doubt that the intent of the Proposed Rule is to substitute 

for open market opportunities. Instead of protecting a plan (which is a laudable goal), the 

Proposed Rule seriously hurts a plan’s ability to retain and best utilize the services of 

world class Multiple Service Providers.

C. Market Research. Certain of our constituents provide their clients with generalized 

information regarding the state of, and outlook for, various real estate markets or sectors. 

If the research provider is affiliated with an investment adviser, as will frequently be the 

case, this generalized information could render the research provider an ERISA fiduciary 

to any benefit plan that receives it. If the research leads the benefit plan to hire an 

affiliated service provider, a violation of ERISA’s self dealing rules may have occurred. 

Again, it is likely that the Proposed Rule would result in many research providers ceasing 

to provide these types of reports to benefit plans. It would be an unfortunate outgrowth 

of the Proposed Rule for benefit plans not to have access to important market information 

that improves their ability to maximize plan assets.

D. Valuation Services. The Proposed Rule would also result in all real estate appraisers 

becoming ERISA fiduciaries to the extent their appraisals are provided to a benefit plan. 

We believe applying ERISA’s fiduciary standards to real estate appraisers is wholly 

inconsistent with commonly accepted notions of the role of appraisers and, again, will 

likely lead only to increased costs of doing business without any corresponding benefit. 

In this regard, we echo the key observations of the joint comment of the Appraisal 

Institute and American Society of Farm Managers and Rural Appraisers.3

 3 Submitted January 5, 2011.

 Particularly, 

that “[r]eal estate appraisers do not act as advocates, but rather objective third parties who 

provide opinions of value based on research and analysis,” and that “offering investment 

advice is vastly different than providing objective opinions of value.” As that comment 
Letter to Office of Regulations and Interpretations

Employee Benefits Security Administration

February 2, 2011

Page 5

letter also notes, real estate appraisers are already subject to their own standards of 

professional conduct that prohibit them from advocating the cause or interest of any party 

and from acting in a matter in which the appraiser has an interest that could bias his or 

her conclusion.

Specific Suggestions

Based on the foregoing, we respectfully suggest that the Proposed Rule be revised as set out 

below.

• Affiliation alone should not be relevant for purposes of determining whether a real estate 

service provider is an ERISA fiduciary. The Proposed Rule’s concept of becoming a 

fiduciary by affiliation creates a high likelihood that a service provider will become a 

fiduciary merely because of some other relationship that the service provider’s affiliate 

has with a benefit plan or because of the affiliate’s status (e.g., if the affiliate is an 

“investment adviser”). For many larger Multiple Services Providers with more complex 

corporate structures, tracking whether one affiliate has given advice or has a status that 

would result in advice given by another affiliate becoming ERISA fiduciary advice will 

be time consuming and costly at a minimum and, as stated above, nearly impossible to 

know due to the attribution rules relating to commingled funds. Depending on how 

various affiliates within an organization track their client and potential client 

relationships, avoiding becoming an inadvertent ERISA fiduciary will present significant 

operational challenges. For example, some affiliates within an organization may track 

clients by property address, not by the name of the principal. Others (e.g., those 

providing generalized research services) may not currently gather enough information 

about clients or potential clients to determine whether the client’s beneficial owner is 

over or under 25% owned by a benefit plan. In short, we think the affiliation rule will be 

disruptive and detrimental to Multiple Service Providers and the benefit plans that value 

their input.

• Appraisers should not be considered ERISA fiduciaries. As noted above, we think that 

the Proposed Rule’s treatment of real estate appraisers is inconsistent with generally 

accepted notions of a real estate appraiser’s proper role in a transaction. Moreover, while 

the Proposed Rule’s preamble concludes that its rules will be beneficial in enhancing the 

Department’s “ability to redress abuses,” the Department did not specifically address 

whether it had considered or even identified particular instances of abuse in the real estate 

appraisal context, nor did it identify any other particular benefits that would justify 

making appraisers ERISA fiduciaries.

• The current regulatory regime should continue to apply to services provided outside the 

self-directed defined contribution plan context. The Department cites two key motivating 

factors for the Proposed Rule’s adoption in the Preamble—the “significant changes in ... 

the financial industry” and “the expectations of plan officials and participants who 

receive investment advice.” The Department further notes that one of the key 

developments since the enactment of the Current Rule is the “shift from defined benefit 
Letter to Office of Regulations and Interpretations

Employee Benefits Security Administration

February 2, 2011

Page 6

(DB) plans to defined contribution (DC) plans.” Thus, overall, the broadened scope of 

the Proposed Rule seems largely intended to protect individual plan participants and 

sponsors of small 401(k) plans, who generally did not have a role (or a significant role) in 

the investment of retirement plan assets when ERISA was enacted. As a general matter, 

however, the assets of large defined benefit plans, welfare plans and non-self-directed 

defined contribution plans (“Trustee Directed Plans”) are invested in a much different 

manner than self-directed plans. Only Trustee Directed Plans invest in real estate in a 

manner that requires them to use real estate related (and many other) services.

The statute itself contemplates a standard of care that varies depending on the 

circumstances4

We thank you for taking the time to consider our comments. 

—the more complex a plan’s operations, the greater the level of expertise 

required of the plan’s fiduciaries. We submit that the fiduciaries that are most likely to 

use real estate services (fiduciaries of large Trustee Directed Plans) should already be in a 

position to critically evaluate any “advice” provided to them by their real estate services 

providers and do not require the purported protections of the Proposed Rule. For these 

plans, the Proposed Rule most likely represents nothing more than substantially added 

costs without any material corresponding benefit. We therefore suggest that whether 

advice provided to sophisticated fiduciaries of Trustee Directed Plans results in fiduciary 

status should continue to be evaluated under the current regulation. At a minimum, the 

Department should consider a moratorium on the application of the Proposed Rule

outside the self-directed defined contribution plan context until the Department has more 

fully studied the potential effects of the Proposed Rule in other contexts (such as in the 

real estate services sector).

Respectfully,

The Real Estate Roundtable

Real Estate Board of New York

National Association of Real Estate Investment Managers

International Council of Shopping Centers

Building Owners and Managers Association International

American Society of Farm Managers and Rural Appraisers

Appraisal Institute

 4 ERISA Section 404(a) (1) (B) requires a fiduciary to act “with the care, skill, prudence, and diligence 

under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such 

matters would use in the conduct of an enterprise of a like character and with like aims.” (Emphasis added.)